Federal Reserve holds fire as ASX gold miners rocket

Overnight, the Federal Open Market Committee (FOMC) kept U.S. interest rates on hold as concerns over the impending Brexit vote and U.S. economic growth weighed on decision makers.

So what?

The Federal Reserve keeping rates on hold implies the U.S. economy is not strong enough to withstand another rate rise. The impact is a lower U.S. dollar as investors withdraw money from government bonds (to invest in places with higher yields, such as the stock market).

Inflation should also tick higher as access to “cheap money” bodes well for spending.

Accordingly, there are some clear winners and losers from the decision.


The biggest winner should be gold stocks. Gold is used as a hedge against inflation, so the Federal Reserve’s decision to keep rates on hold augurs well for inflation. Following the decision, the underlying commodity rose and it currently trades near multi-year record Australian dollar highs.

Gold producers such as Newcrest Mining Limited (ASX: NCM), Beadell Resources Ltd (ASX: BDR) and Silver Lake Resources Limited (ASX: SLR) should benefit from the bounce in the precious metal, pushing their share prices higher in the short term.

Other sectors to benefit are ones which rely on a lower U.S. dollar for sales or offer high yields. Tourism and utility stocks such as Ardent Leisure Group (ASX: AAD), Flight Centre Travel Group Ltd (ASX: FLT) and Telstra Corporation Ltd (ASX: TLS) should be benefactors from this trend.


The losers will be sectors which rely on a lower Australian dollar (against the U.S. dollar). QBE Insurance Group Ltd (ASX: QBE), which derives almost 40% of revenues from North America, and Brambles Limited  (ASX: BXB) could be short-term losers because of a weaker U.S. dollar.

Foolish takeaway

Investing in stocks should not be based on the timing of the unknown. Instead, investors must focus on the underlying business of a company and determine whether it will be around in the next 10, 20, or even 50 years’ time!

The U.S. will inevitably lift interest rates in the future. Whether it occurs this year, or over the next few years remains a mystery. Nevertheless, buying companies which have no pricing power or high capital expenditure (like gold stocks) could be fraught with danger for long-term investing.

Instead, investors are better served purchasing stocks which will perform strongly for years to come.

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Motley Fool contributor Rachit Dudhwala owns shares of QBE Insurance Group Ltd. and Telstra Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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